EC Booze Tax Proposal Loses Fizz

by Ulrika Lomas, Tax-News.com, Brussels

08 November 2006

The European Commission's plan to increase the minimum rates of excise duty on certain alcoholic drinks has been derailed after a handful of member states refused to accept the proposals, and finance ministers failed to agree a compromise.

At the latest Ecofin meeting, opposition to the EC proposal to raise the minimum taxes on some alcoholic beverages by 31% was led by Germany and the Czech Republic, both of whom want to see beer exempted from the measures. They were supported by Latvia and Lithuania.

With Germans already facing a 3% VAT hike from next year, Deputy Finance Minister Thomas Mirow said that yet another tax increase would be too much for German beer drinkers to stomach. The average German guzzled 115.9 litres of beer in 2004, according to the Brewers of Europe, second only to the Czech Republic, where drinkers downed 156.5 litres in 2005.

"Germany is not against alcohol tax but Germany is against beer becoming more expensive. We have made clear that because of the sales tax raise, we have no manoeuvring space," Mirow told reporters.

However, when Finnish Finance Minister Eero Heinaluoma proposed an opt-out for beer, several other nations, including Spain, Portugal, Italy and Cyprus, also wanted their national tipples exempted from the tax. In turn, Sweden and Denmark opposed the idea of opt-outs.

According to the Commission, the measure is needed to achieve a level tax playing field across all 25 EU nations. It claims that the proposals would lead to an increase of just 1 euro cent per half-litre of beer, and will only affect 11 of the 25 member states, as national rates in the remainder already exceed the proposed new minimum rates.

EU finance ministers will try again next month to achieve a compromise on the minimum tax. However, with Germany set to take over the six-month rotating presidency of the EU in January, this could be their last chance for some time.

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